Q4 2019 Earnings Call
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Good day, and walking matter wants to be by core earning results for the fourth quarter and year ended December 31st do you happen to 19 boosted by Dr. Patrizio Vinciarelli C O vicor entering a fan Seattle like or my name is Tommy nine or that miniature during the presentation, you're likely to remain on Saturday.
Quite fast at any time, please press star zero on your telephone and Accordant each I'll be happy to assist you.
I Hope I guess this conference is being recorded for replay purposes, and now I'd like to hand over to Jamison. Please go ahead Sir.
Thank you tell me.
Good afternoon, everyone and welcome to Vicor Corporation earnings call for the fourth quarter and the full year ended 12 31.
Jamie Simms, CFO and with me here and and over our Patrizio Vinciarelli CEO and filled babies worldwide head of global sales and marketing.
After markets closed today, we issued a press release summarizing our financial results for the three months and 12 months ended December 31st.
This press release has been posted on the Investor Relations page for web site.
Www Vicor power Dotcom, we also filed a form 8-K today related to the issuance of this press release.
I remind listeners this conference call is being recorded in is the copyrighted property of Vicor Corporation.
I also remind you various remarks, we make during this call may constitute forward looking statements for purposes of the Safe Harbor provisions under the private Securities Litigation Reform Act of 1995.
Except for historical information contained in this call the matters discussed on this call, including any statements regarding current and planned products current and potential customers potential market opportunities expected events that announcements planned capacity expansion as well its management's expectations for sales growth spin.
Ending and profitability are all forward looking statements involving risks and uncertainties.
In light of these risks and uncertainties, we can offer no assurance that any forward looking statement will in fact proved to be correct.
Actual results may differ materially from those explicitly set forth or in or implied by any of our remarks today.
The risks and uncertainties, we face are discussed in item one eight of our 2018 form 10-K, which we filed with the FCC on February 28 2019.
We expect to file our 2019 form 10-K. This week ahead of the Fccs March 2nd deadline, and a refreshed discussion of these risks and uncertainties that we face will be presented there in.
Please note the information provided during this conference call is accurate only as of today Tuesday February 25, 2020, Vicor undertakes no obligation to update any statements, including forward looking statements made during this call and you should not rely upon such statements. After the conclusion of the call.
A replay of todays call will be available beginning at midnight Tonight through March 11th 2020. The replay dial in number is 888 to eight six 801 zero followed by the pass code 9015 for one to nine.
This dialing in passcode are also set forth in today's press release. In addition, a webcast replay of todays call along with the transcript will be available shortly on the Investor Relations page of our web site.
We'll start this afternoon's discussion with a review of our financial performance, Phil will address current market circumstances, and our outlook and it and after closing remarks by Patrizio, we will take your questions.
So beginning with consolidated results as stated in today's press release Vicor recur reported total revenue for the fourth quarter of 63.1 million down sequentially, 10.8% from the third quarter figure of 70.8 million and down 14.4% from the fourth quarter 28.
I mean figure of 73.7 million.
Revenue for 2019 totaled 263 million a decline of 9.7% from the 291 million recorded for 2018.
29 teens year over year revenue decline, primarily reflected for advanced products reduced shipments into datacenter applications and for brick products. The influence on demand from Chinese customers of import tariffs placed on our products.
In aggregate, our annual shipments to China, and Hong Kong declined from approximately 38% of our total revenue in 2018% to 22% of total revenue for 2019.
Japanese revenue the sum of distribution and VJ C.L. sales declined 29% year over year, reflecting the significant economic weakening of the second half of 2019.
To address the Japanese market during the year, we repositioned our majority owned subsidiary VJ CL to focus on custom and Configurable products for the Japanese market. We also established a support office in check in Tokyo, with new hires focusing on promising opportunities in automotive and supercomputer.
Okay.
All sales of brick products and advanced products in Japan are now through new distribution partners, which are well positioned to broaden our penetration of the worlds third largest economy.
North American revenue expanded 9.3% year over year with say with sales through industrial distribution rising complemented by increased defense electronics volumes, consisting of higher shipments of both brick and advanced products.
European revenue rose, 3% for the year, reflecting improved conditions in certain industrial segments on the continent offset by ongoing weakness in UK demand.
For the fourth quarter, the same conditions influencing our full year performance were at play.
Conditions in China continue to have the most significant influence on our performance.
Our exports to China, and Hong Kong declined approximately 20% sequentially for the fourth quarter as the 2019 expansion of trade restrictions by the U.S. government, including the prohibition of sales to certain Chinese customers in supercomputing data center and aerospace reduced both bookings and ship.
Thanks for the quarter.
Revenue through Hong Kong distribution declined sequentially, approximately 10% due to further slowing of the Chinese economy, and reduced demand across industrial segments, owing to the 20% tariffs applied to our products by the Chinese government.
As was the case for the full year for the fourth quarter brick product revenue increased slightly as higher domestic distribution higher domestic defense electronic shipments and an unexpected level of domestic turns volume offset declines in brick product shipments to China.
However, advanced products revenue declined by 33% sequentially driven by three events.
Our forecast for Q4 2019 had included shipments to an important hyperscale customer. This customer subsequently reschedule deliveries, which are now set to ramp in April.
We also experienced customer rescheduling of the start of a program in commercial satellites production is now scheduled for that program for mid year.
The final contributor to lower advanced products revenue was the delayed shipment of certain pre production volumes brought about by supply chain bottleneck. We believe we have successfully address this bottleneck ahead of upcoming production ramps.
For the fourth quarter, the brick to advanced revenue split was 74% to 26% in contrast to the split of 66 34 for the third quarter.
International revenue declined 24% sequentially, essentially giving back to 28% increase recorded for the third quarter with the decline largely tied to the Q3 relaunch of a Hyperscaler server program and the aforementioned Q4 rescheduling of deliveries for that program as.
As a percentage of total revenue for the fourth quarter International and declined to 50% from the prior quarters, 58%.
For the full year International revenue represented 54% of total revenue in contrast to 62% for 2018.
Consolidated gross margin as a percentage of revenue for the full year was 46.8% down slightly from the prior years, 47.7% for the fourth quarter gross margin was 47.1% increase sequentially from 46.6%.
Through the year and the fourth quarter, our operational metrics have improved.
However, we recorded charges of over 1 million in Q4 associated with the aforementioned supply chain bottleneck.
Hi, inbound tariffs continue to impact gross margin as we incurred 1.3 million of tariffs for Q4.
You asked customs is backed up with high volumes of applicants for the duty drawback program. So we have yet to recover any amounts of tariffs paid to date. The total amount of section three a one tariff paid since implementation exceeds 5.6 million and we anticipate more than half of this amount will be eligible for drawback.
We continue to evaluate suppliers that would not subject us to section 301 import tariffs certain vendors are nearing completion of their efforts to move production out of China, and we hope to see lower imports subject to tariffs through the year.
Ill now turn to operating expenses for the year total Opex rose, 2.5% exclusive of the $402000 severance charges. We recorded for the year excuse me we recorded in 2018 with the majority of the increase occurring in the fourth quarter, reflecting for the year spending discipline.
And the head count related nature of our spend.
For 2019, our full time headcount increased by 17 or 1.7% to 993 with 14 of these new hires occurring in the fourth quarter of the year.
For the fourth quarter.
Opex increased 7.1% sequentially largely due to an increase in project specific prototyping charges.
Full year end fourth quarter operating income reflected lower revenue.
Full year operating margin declined from 5% to 5.3% from the prior years, 11.1%, while Q4 operating margin fell sequentially to 1.4% from 8.6%.
Turning to income taxes, we recorded a small net benefit for Q4 to bring our full year effective tax rate to 5.2%.
Net income attributable to Vicor totaled 14.1 million for 2019, a decline of 56% for the year. The Q4 figure was 1.3 million representing a sequential decline of 78%.
Fully diluted GAAP EPS for the fourth quarter was three cents on a diluted share count of 42.404 million shares.
This is in contrast to Q3 net income of 5.9 million, which represented fully diluted GAAP EPS of 14 cents.
Turning to our balance sheet cash and cash equivalents sequentially rose to $84.7 million accounts receivable net of reserves totaled 38.1 million at year end down sequentially, 4.7% with Dsos for trade receivable steady at 45 days all balances are curve.
Current.
Inventories net of reserves decreased 1% sequentially to $49.2 million with another sequential decline in finished goods.
Annualized turns remained at three.
Capital expenditures for Q4 totaled 3.4 million, an increase of 3% sequentially.
Now turning to our planned expansion, we closed on the acquisition of land adjacent to or and over plant in December.
Mother nature is now our primary gating variable and we plan to begin construction in April and complete and expansion of our Federal Street factory by 90000 square feet going from 250000 to 340000 square feet by year end as stated before we anticipate internally funding both.
The construction and the multiple phases of planned equipment installation.
I will now address backlog and bookings.
At year end, one year backlog was over 104 million, an increase of almost 16% sequentially, reflecting a 27% sequential increase in bookings for the quarter.
New advanced products orders essentially doubled for the quarter, while brick product orders were flat.
New advanced product orders reflected activity in the datacenter space and a notable increase in orders for commercial lighting applications.
Brick products ordered orders reflected the circumstances seen in our revenue, China and Hong Kong continued their decline while domestic activity was steady.
Turning to our outlook for the first quarter of 2020 subject to the impact of the Corona virus outbreak, we anticipate limited progress in revenues for two for Q1 ahead of anticipated increases starting in Q2 as shipments for AI accelerators and datacenter servers start to ramp.
With that I'll turn the call over to fill who will provide insights into market conditions and our positioning in those markets.
Thank you, Jamie and good afternoon to everyone.
Jamie just discussed 2019 was a challenging year for us, particularly in China market, we the tariffs situation and potentially important customers there who ended up on the columnist departments denied parties list.
We also faced an over inventory situation and push outs without datacenter customers.
Plus reduce spending in the semiconductor test equipment market.
We did however, see growth in North America, and Europe, with both our brick products and advanced products and our global distributors grew at a combined 22% year on year.
So we remain enthusiastic about our twentytwenty prospects in AI acceleration supercomputing and datacenter service, given design wins, and expanding product offering including power on package solutions and a have a broadening customer list.
Customer interest in Factorized power solutions for the 48 volt variant of the opened accelerate the module or as its commonly called the OEM design put forth by the open compute standards group is high we.
We are working with GPU and basic developers on OEM solutions, if listeners of attending the open compute summit in California in early March you'll see companies that demonstrating new 48 volt based OEM accelerate a mezzanine costs.
There are two power levels for these cards on the lower power versions use our 48 volt to 12 volt and 12 to 48 volt modules.
The 12 to 48, what modules modules enable these AI cards to be backwards compatible with datacenter customers. We're still using 12 volt power delivery networks. The high Apollo cards use our LPD all lateral power delivery 48 volt to load Factorized power solutions look.
Forward demand for much higher AI process of performance requires much higher current which is bringing new customers, both very large and small such as new startups to our VP of vertical power delivery as de enabling solution to their current density needs.
Some of these startups have already being acquired by larger companies, which is good for us.
All add up as design wins in the datacenter and AI process a market for next generation devices that require greater than 600 amps. These projects are expected to ramp in late Twentytwenty through 2022.
In the last quarter, we also engaged with cloud networking companies and network processes supplies were facing the same power delivery challenges as the cloud computing on AI Processa companies. We are starting to see current requirements. In these applications approach 1000 dams and we are.
Engaged on VPG vertical power delivery solutions for this new cloud networking market, which will provide significant new opportunities, while leveraging capabilities already in place for the market.
More to come on this in future updates.
We continue making progress with design wins for advanced products in other growth markets as evidenced by the high power video display project mentioned by Jamie, which we were awarded in Q4.
Our unmatched efficiency and density our ideal for slot for such large scale implementations.
Q4 award is for a 20 megawatt installation that will be one of the world's largest LCD displays we will see additional projects similar to this on the horizon.
Back in June of 2019, I had an opportunity to update some of you at our annual shareholders meeting, where I discussed a few of these large growth markets.
Notably automotive and I'd like to take the opportunity to give you a further update on our progress in automotive which continues to be very positive.
The good news is that the move to 48 volt says the main power delivery network within automotive continues to gain significant momentum I am pleased to report that we have signed agreements with European and Japanese Oems for new advanced products that enable power system solutions with unprecedented power conversion density.
And modular system flexibility for hybrid and full electric vehicles.
As is the case in artificial intelligence and supercomputing automotive design is a tuning to vical for unmatched performance that intune differentiates the performance of their end products.
The progress we have made in just over a year has been remarkable and the momentum is building with two agreements signed in the fourth quarter and more coming this quarter.
Our next annual shareholders meeting in June Patrick Warden, our VP of worldwide through business development will be presenting our progress in far more detail.
With that I hand, the rains over to for three Joe to make.
I am leave me the my remarks today, given a bed cold and cough may make it even out of the to come fan My voice.
I won't repeat this statement from last quarter.
Vicor is executing well in the face a challenging conditions and near term uncertainties and what caution the comp as well position for long term growth in very promising markets.
We're engaged with parties interested in partnering with us.
For either technology or market access with the goldilocks, adding expansion of vertical markets without kind of sources.
Which are both expected to follow sustain secular growth trends.
And Jay mentioned that forthcoming capacity expansion.
Evidence of Comcast in.
The future.
As this cash booking patterns continues to reflect.
US China trade, then Todd if dynamics country specific micron certainty.
Segment specific demand visibility challenges and more recently the cost bias uncertainty.
Bookings growth in Q4 was expected to set the stage for an upward trend in Q1 with sequentially higher bookings and revenues. However program uncertainties that closed in Q1 revenues to be less than ideal forecasted.
We have a sizable pipeline okay programs in accident ration supercomputing and sent this service.
With the southern supply chain on certain people about the grown our buyers. Some large near term advanced products saw this may be delayed until it clear sense of the extent and Atlantic outbreak is developed.
We'll now take your questions, but either.
Thanks, everyone. Your question answer session will now begin.
Your question. Please press star one.
Exactly your question it seems at this time.
For questions, Let me answer to in the order received and you'll be advised I'd ask your question one other lines are coming on.
First question.
Paul Cheng. Please. Please proceed your line is going out.
Okay.
Hi, gentlemen, congratulations on a nice order in the fourth quarter, obviously, some some near term uncertainty around a number of moving factors, but was hoping you could just clarify your comments again about the orders that.
Pushed out did you say that it was a HPC customer or a hyper scale server customer that that pushed I guess from Q4, two the month of April.
We saw push outs from a couple of our.
Datacenter and HPC customers actually it was it was up a couple of fairly large companies that we've been dealing with for a couple of years, though.
Got it.
And then I guess the second question, Jamie you sort of said in your script that you did not expect revenue in the first quarter to advance or some similar term wondering if if that's effectively sort of but you're looking for revenue to be roughly flat or do you think it actually takes a step down with grow.
The virus and continued weakness out of China, China Hong Kong.
Part of the business.
I would expect it to be slightly app.
I will substantially.
Contrary to our expectations.
Going back to the question that he'll answer to that he got being.
The scheduling.
So what we are on the verge off with a large.
Cash them as seen in the service space.
Is it ramp softer than ever.
And at this point that's locked in for Apple.
We're also on the verge was expected to be in major around.
For Energyvue obligations.
That's also you too.
To start ramping in the next.
Yes.
So while they Devin.
Im sorry.
I didn't know please continue Patricio I'm sorry.
So while there's been some.
Rescheduling.
[music].
With those customers at this point, we have line of sight.
Two ramps of the imminent.
Now.
We should all be cautious, though with respect to.
The potential impact of current allies, because it this is massive effect on supply chain.
And.
So we need to sit tight over the next several weeks.
To see was actually ends up happening it's good news over the weekend that.
The Chinese government the extracted Chinese companies to give back into the business that will help relieve.
Some of the supply chain constraints with Inc.
But ill have to that level.
They see uncertainty in the near term.
Great and just last question for me it sounds like the Q2 ramp beyond is driven from multiple customers.
Hyperscale servers, new GPU, the HPC business coming back to you now have firm orders on the books for delivery beginning Q2 for those programs or are you still waiting for some of those orders.
At this point.
No we have orders on the books for a lot of the new programs for this coming year, we're in good shape.
Great. Thank you Mark I mean, yes of course so.
What was in the most call versus any of it.
Including third party.
The ramping the server applications something in that.
Your next question is coming from the line of John Tonawanda sang.
Please proceed here and I'll turn the call.
Hi, Good afternoon, and this is a brendan on for John.
I just wanted to ask real quick I know a lot of customers and move their supply lines out of China due to terrorists.
I would have.
Rain delay.
And wondering if you've been able to pursue some of our strategies and your production at all and do you see more of that kinda impact looking ahead.
Yes, so we've been suit pursuing.
Just added G of limiting our exposure.
Two Chinese.
Supply.
Because of.
The ongoing tires.
In other considerations.
Question on these.
In each of these takes time.
We're looking forward.
Some of the key suppliers.
Having established.
And not this ourselves size of China.
In the first half of this year.
So the dependency as being less sensitive but is still significant.
Great. Thank you.
Your next question is coming from the line of Richard Shannon. Please go ahead your lining the call now.
Hi, guys. Thanks for taking my question as well.
Lets you may be quick question on the the brick business here, if I am to read the tea leaves right here is it fair to say that you're you brick business is getting.
Reasonably good bookings outside of China, but the ones for China are the ones that are seeing some issues.
Yes, Thats correct.
Okay as we look at China going forward and if I caught the numbers right from Jamie you had 20% of your sales for 2019, I didn't catch number exiting the year, but.
And it kind of a worst case scenario one the.
Yes and.
And the supply chain issues that you've talked about already continue to.
To be enforced and you can't solve the supply chain problem, you see a big risks to a lot or most of that China based business disappearing overtime already or do you. So can you can still sustain some of that.
So.
I think it's a complex question to answer.
There's a lot of imponderables, but.
Ill.
Yes.
Exit proven to have.
Hi, the resiliency to a variety of.
Factors that passage of time.
And.
The recent set of issues.
That said that we obviously twoq ahead with respect to rig business in China.
Last year.
Phil what do you see happening going forward the with the big business in China. So I think that from the tariff point of view the business is sort of flattened out in terms of that actually the overall BRIC market in China is is actually growing as a total market opportunity. It's just that there are local supply.
For Chinese made brick products, but the overall market is growing in our position in that market is still very strong with a very high brand of high quality high reliability ruggedness. So I still see a good brick business for us going forward to on a number use in the.
Chinese market.
Yes, so to be clear the.
The copycat Briggs from Chinese makers, as Don workload that well.
When going up by gas.
40 years old Greg.
And we cannibalizing our own Briggs with advanced products that before the big function Frasch office space.
And with significant performance of van advantages so.
But you only.
When.
We take into the into consideration the long term competitive advantage.
Advance product version of an old fashion Rick.
The demand in that market is subject to.
Avoidance of excess seeking to maintain sufficient.
Should I should say some.
Okay. That's helpful. A couple more questions from me I'll jump out of line first of all.
Last quarter, you got a sense of increasing breadth of your orders, particularly and I'm I'm specifically interested in the advanced products, maybe if you could provide some some context to how that how that finished the fourth quarter, how you're seeing the first quarter, maybe give us a sense of what you expect.
In the breadth of this this order and sales book exiting this year.
So exiting the year, we had some very nice orders from some new applications actually we mentioned the the video the very large video wall display that were involved with that 20 megawatts.
Level that was for a new front end three phase AC to DC product to AC to 48 volt and it's a it's our first entry if you like into a into a new AC to DC market that is actually four times bigger than the DC to DC can go to market.
So it's a market that we have big plans for as we introduce new products through through this year.
So that order came in in the fourth quarter, we've been working on it for awhile.
Then we started to see preliminary orders coming in for.
The launch of these new data center, HPC and GPU customers.
Early ramps if you like in pre production phases getting systems in place for their early customers. So that that came on in fourth quarter as well.
Okay perfect. One last question for me.
I think in your prepared remarks, your Phil I think it was you were discussing the the OEM modules.
Just wanted to confirm if thats really a market at least today that are really serving buyer NBM zombie.
How many of the announced partners for Oems, both on the infringe and training Saudi working with.
Oh, well to answer the last question for working with a lot of them.
When it comes to 48 volt stemming the NBM is the densest highest efficiency product on the market, it's very easy to use dropdown solution and pretty much all of the OEM guys going 48 to 12 are using it and then for the 12 volt infrastructure market, where they have to go 12.
To to 48, the using mgms there as well so we've got really great penetration with that product and also there is a regulated version of that product that's getting great traction out there as well right now so we've we've high hopes for the 48 to 12 market actually.
So they get inversion is called the DCM and customers.
And now choose between fix rational and the related.
Today's with somewhat different tradeoffs in both we have by far is that the solution.
Okay excellent I appreciate all the detail guys that is all the questions for me.
The next question is coming from the line of Jon Gilligan.
Please go ahead your lining the goal.
Hi, guys good to hear you.
I just wanted to say it was really nice in gross margins go up this quarter, even though your revenue went down so that was nice to say, but my question is it more on.
First of all Patrizio I, just want to make sure I understood. The bookings for next quarter, you expect to be up sequentially is that what I heard.
No I didn't say that so.
Yes.
We.
See this quarter bookings.
Being an above the revenue level with greater than one book to Bill.
But we don't expect it to be.
This quarter of the level of Q4.
Okay. Okay. So I misunderstood thank you.
Right and let's talk about the backlog for a second it seems like you have a great backlog there were 100 million and backlog and I'm wondering is that all scheduled to ship within the year.
Yes, yes.
And is there any orders in house that are scheduled for more than a year out that aren't are not included in the backlog numbers.
Yes.
The meetings to then that now.
Thats significant because Jay speaking cast members don't book that.
Correct. Okay. Okay, just wanted to I wasn't sure if some customers kind of.
Got it kind of customers keep coming back to you we put in some long multiyear orders to get better pricing or something I didn't up that was possible or not.
So Phil.
Talked about some of the ramps that you're saying we've seen one hyper datacenter Google has been taking products from you for quite awhile now and I imagine your strategy is to use.
Just to get you put into the door or the other data centers the big data centers, but im just wondering can you give us a little bit more color on that and also is there any visibility as to when another hyper scale data center will adopt 48 vaults on a grand scale across the whole.
The whole data center.
Okay. So.
Okay. So I will leave the specific names so cash than ours.
Right, yes, so in general so it's safe to say, we're working with.
Pretty much all of the.
Data some sent the companies here in the United States across a variety of different applications. So some of talked about which is the 48 volt to 12 volt and 12 to 48 volt sort of applications. So we're working with pretty much all of them on that.
With regards to Factorized power applications, we are working with again quite a few of them on their own internal lasik.
Developments and those a new engagements that we came came on board in Q4.
We are the ones that we in the initial stages on which will come on in Q1 Q2 of this year. So one of them they spec over a year sense of development they've been more recent.
That's right, yes, yes, so so in terms of deployment of large scale 48 volt racks.
That is starting and the open compute.
Forum, you'll see a lot more 48 volt at that that show this year than you did last year, although last year was very encouraging.
So you'll start to see I think 48 boats.
In the rack in terms of the power delivery networks.
At the big other Hyperscalers like Facebook, Amazon, Microsoft and companies like that I would I would think at the 2021 2022 sort of a area.
Up until then they have to use the 12 to 40, Eightth and then I'll 48 to load Factorized power solutions for the eye accelerate does that they're going to use so.
Next I'd add those if transition the fourq involved thats really the ones that Matt yes, So we're getting into those data centers sort of like a Trojan horse strategy. If you like.
Kind of getting your put in the door with YY, Scott, but then it sounds like the datacenter customers are starting to realize that 48 volt can go across the whole data center and that would be beneficial.
Is that what I'm hearing is that kind of this yes delay it.
Now turning back from Fourq involved either in that sense, there's phase in AI.
All for that matter they now that.
It's coming.
We see the same thing happening in China as well so the China.
Ali Baba Baidu Tencent, they're all actively developing 48 volt racks based on.
The Scorpio.
Standard, which is the equivalent of the open compute.
Great I'll get back in the queue at this time thanks.
Your next question is coming from the line of Gus Richard.
Please proceed airline in the core.
Yes, thanks for taking the question just.
Quickly on the release schedules that you saw.
Can you give a little bit more color as to whats driving that I know one was a calm satellite.
There was hyperscalers is there.
The issue with there. So these are products any color there would be helpful.
No. It was it was the bring up of new products new platforms and.
We are over inventoried quite a bit on the some of the older programs and platforms and so they they build those out and then they start working on the the next generation microprocessors and Gpus and that was the reason for the push out.
The programs are there the healthy they'll come on in Q2.
Got it and then on the supply bottlenecks any any additional color there is that.
Issues, getting magnetics or something else.
So thus far we've not been impacted.
On the supply side.
From corn on buyers.
We may be.
Acted if.
Shops in China stay close again. This has suggested earlier it was encouraging to see over the weekend that the mandate from the Chinese leadership is to get back to work.
So we'll have to see how it plays out obviously eve.
If garage stands out to be.
Bases and.
Recent.
Reversal.
In China work to turn around.
That could that would have excuse effects, so with respect to supply chain.
But thus far we have been able to get for the most part of the components we need.
From China, obviously.
The changes supply chain was effectively closed over from the Chinese new year and this year be goes across Elias.
Usually a one week.
And then turned into FY week shutdown.
And things, so steel not really running smoothly, but to see fashion on the usual shutdown. We obviously had buffett materials. So what color through the next several weeks and we're taking a wait and see at the view than.
Obviously, taking steps where possible to make sure that needs I think.
Got it and then the last one for me you're working with a number of ace of vendors GPU vendors et cetera.
Im just trying to understand is.
Most of those customers is your products acquired when they move to seven nanometer or five nanometer or is it is independent of what process node. They are currently.
Right.
It's really more to do the level of current that the that they need certainly as you go to seven nanometer. The performance just going up there for the current is going up the power is going up.
The same at five nanometer the challenges they move down this process nodes is that the sometimes the operating voltage.
That they're working is dropping and.
Our factorized power solution with current multiply is a fantastic way of.
Going from 48 volt stone to we've got customers as low as 0.35 volt and so you can still do that with a factorized power solution much easier than you kind of an Ivy a sort of.
Multi phase solution. So it's across the board really but it really depends on the amount of current.
But these at quarter last year.
I mean.
The voltage unknowns and the current views Jay speaking.
The technology trend of going down to tsunami that five nanometer is that technology trends that leverages.
He's actually involved which.
The increase in Crackup ability for.
Comparable to all powered to see fashion.
To achieve grade there SASSA performance into feels fine.
So strongly correlated to our solution in that that with our solution and this unique to our solution.
Lower voltages and our clients the more than there was so with.
Sickle competitive alternatives.
It's very difficult to average down to a fractional evolve from from asphalt image that these.
Acceptably efficient that the CV empowered is if I made the conflict.
Being efficient power distribution and the ability to support the low voltage is because the alternative.
Technologies lack of the current multiplication function that these are call.
Factorized power.
Got it thank you so much.
Your next question is coming from the line of John again once again. Please proceed your lighten the coal.
Hi, guys back.
So previously I Wonder if you can give us an update on the RFM.
So we have.
Two GFM and.
Getting very close to the Fourg at effect.
We got.
Let me the scope of the engagement intentionally so with the two G which is in effect is counting product.
It's not.
Thank you for really special skeptic ash and as opposed to high volume may seem uptick actions and thats what the fourg.
Is intended for.
We actually do cities so.
Step up interest in at least one.
Got it fem application.
We're seeing other anxious for.
Fourg at offense.
[music].
As with the front end products for which we gather a substantial all the late last year I think the future all James fee on offense.
Fees.
They bright for us very complimentary.
2.2 rolled.
Solutions they are.
Are there and nationally because.
Cash summers.
Need to power deceased since the beginning.
From from AC sauces.
And.
In the 48 volt boss is.
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Yes that which without technology.
Being sees altogether, so the RFM effect pace.
The power from the source and the revisit.
The fourq evolve level, which is.
Safe.
Sufficient to distribute.
And.
Scaffold with crime multiplied technology to then be converted the actually two seven nanometer nodes of five nanometer nodes with very high level. So efficiency. So the the FM.
Products.
With.
Coming Fourg versions are going to be much.
Hi performance and much more cost effective into G.
Plays an important role into the overall strategy.
I'll make one comment with respect lease that energy.
We are the only company that as.
The breadth of capabilities.
To address general power system needs with the Powerpoint methodology. This spans the gamut from Friday to evolve they see sources all the way too as feel was saying earlier 0.35 vault.
Subtract showed.
Implement the issuance of overvalued chips.
And the RFM is a key element of this strategy is if you will the jumbo jet that takes.
The.
The power to an efficient hub, which is 48 volt on the way to the point that.
Yes, sure it sounds really exciting when do you expect we would see initial revenue for that and then when you expect we would see production revenue for the fourth generation version.
So we are actually.
Gauging on.
For GFM developments, we have.
It controller chip.
These viewing.
In about six seven weeks, and we're going to stockpiling things out.
In Fourg RFM land in the second quarter.
Excellent platforms right then we'll go with the controller.
You to arrive.
In against seven or eight weeks.
And then production revenue when do you expect that.
Absolutely.
Well I think that's probably steel at least the year way, but.
Moving to design activity, where did you have some.
As an activity taking place as we speak.
Great.
And the results today kind of begs the question Yeah, we've talked about diversification in previous conference calls Im just wondering when do you think will have sufficient diversification that we can kind of smooth it out the quarterly bumps that we're saying.
Phil I think I think this year is the is the you had to do that I think if you look.
If you look at the customer list that we had going back a couple of use it was one big data Center Guy maybe a couple of small ones, but now if you look at our customer list for this year. It is its expanded significantly. So I think 2020 is the you to do that and then 2021 with all the new programs coming on.
Hi.
Powering AI shakes the OEM caused the 48 to 12.
I'm very confident about.
Our position in the data set the market in the growth, it's going to come from that to your point smoothing out the bumps that weve gone through the last year on year before.
Yes, the more of this deal to the year. So that's that's going to add a significant component.
Yes, I know Im encouraged also I mentioned the network.
Cloud networking companies that have come to us.
Asked us for solutions for 48 volt snow and high at current networking processes. That's a that's a new market that parallels very closely the eye.
And cloud computing space. It's the same challenge the same problem, we've got to exactly the right technology and products for within that market is very launch.
So you're talking about network processors like the Cavium chip.
No I'm talking much higher but much higher bandwidth and not I mean, the stuff that goes into backhaul backplane backhaul of Datacenters, that's really needed to move the data room.
Great all right great sounds good. Thank thank you very much. Thank you all.
So a phase one more question will target.
One more question from line of Quinn Bolton.
Please go ahead your latter Nicole.
Great just wanted to follow up on John's question about the broader adoption in data centers. It sounds like the next 12 months or so is going be driven by the AI accelerators. The OEM modules for the MBM words, 12 to 48 or 48 to 12, but when you talk about broader adoption of 48 volt 48 volt racks are you sort of implying that every.
Take on that on the card or everything in the service would be 48 volt, so that would be including the.
Intel and am DCP use and so you'd have opportunity for point of load for.
Yes pretty much every component on the on the motherboard.
Yes in terms of the high performance compute the extra scale type computing.
That's already 48 volt and we do power, a MD processes and I performance Intel processors on those cause.
Directly from 48 with Factorized power solutions and then in terms of the general if you like cloud computing server market that infrastructure is starting to move over to 48 volt at the Big data center companies because they're in they are moving to add AI capabilities to the cloud the power in the racks are going up over 20 kilowatt.
To 40 kilowatts, you could not used 12 volt.
Power delivery networks in the rack for that so so that's going to take a euro two two to happen, but that infrastructure changes happening and is being supported by LPC.
With the Rocky gap.
And then last quick one for for Jamie that Opex ticked up in the fourth quarter. You said some of that was project specific development charges, how should we be thinking about opex in Q1 and beyond.
For the rest of the year in 2020.
Well the the.
Headcount expansion was essentially a replacement a truing up of.
Over the years. So as you saw the the percentage increase was very small so I don't think there's real reason to assume that theres going to be a sustained ramp.
The project materials. The prototyping expense was was somewhat one off in.
It's not to say that we won't be spending a lot on prototyping, but.
It's surged a lot just from timing.
So so maybe flattish in Q1 from Q4.
Yes.
Not materially more I mean again I emphasize the the personnel nature of our.
Of our Opex since its head count.
Got it thank you.
And with that thank you very much we'll be talking to you in a few months good day.
Thank you everyone that concludes your conference call for today you may now disconnect. Thank you for joining.
Good day.
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